UBS to Cut 10,000 Jobs in Major Overhaul

6:26 p.m. | Updated
LONDON — UBS, the Swiss bank, announced plans on Tuesday to eliminate up to 10,000 jobs and cut costs in a major overhaul that will squeeze its earnings in the short term.

Like many European banks, UBS is dealing with the effects of the sovereign debt crisis and the sluggish European economy. With profits eroding, the Swiss firm wants to reduce its riskier operations and focus on its profitable wealth management group.

A year ago, the bank’s chief executive, Sergio P. Ermotti, first announced efforts to pare back the firm’s risky trading activity and focus on the wealth management business. Mr. Ermotti said on Tuesday that stricter regulatory capital requirements and continued uncertainty in the global economy had pushed the bank, which is based in Zurich, to hasten its restructuring plans.

“The regulatory environment has become tougher and more demanding,” Mr. Ermotti said in an interview. “Parts of the investment banking universe are just no longer commercially sustainable.”

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The pullback in the firm’s investment banking operations follows a number of scandals that have engulfed the division. That includes a $2.3 billion trading loss connected to the activities of a former trader, Kweku M. Adoboli, and potential fines related to the manipulation of the London interbank offered rate, or Libor. The bank is working with American and international authorities on the investigations.

Job cuts have already begun. On Tuesday, UBS began to tell some employees that their positions were being eliminated. Over the next two years, UBS plans to reduce its work force by as much as 16 percent, bringing the total employee count worldwide to 54,000. Last year, the bank announced a separate batch of 3,500 job cuts.

The layoffs will be most pronounced in London, where UBS has a sizable investment banking operation. Mr. Ermotti said up to 45 percent of the layoffs, or 4,500 people, would be in London. A further 2,500 job losses would come from its Swiss operations, while the remaining layoffs would be borne by UBS’s division in the United States.

The job cuts are part of a broader plan to cut costs at UBS. The latest moves will help reduce expenses by 3.4 billion Swiss francs, or $3.6 billion, by 2015, UBS said in a statement. Added to the bank’s previous efforts, UBS expected annual savings of 5.4 billion francs over that period.

Analysts welcomed the restructuring plan, saying UBS’s competitors might now be forced to also reduce their investment banking units in response to stricter capital requirements that have reduced the profitability of risky financing dealings.

“We would expect this to kick off further industry restructuring,” said Kinner Lakhani, a banking analyst at Citigroup in London.

Shares in UBS rose 5.9 percent in Zurich on Tuesday.

The wholesale changes to the way the bank operates will limit UBS’s investment banking activities to those connected to its wealth management and corporate clients.

UBS said it planned to eliminate most of its fixed-income businesses because they had become unprofitable. The smaller investment banking unit would focus on advisory services, research, equities, foreign exchange and precious metals.

Andrea Orcel, who joined UBS last year from Bank of America, will lead the smaller investment banking division, while Carsten Kengeter, the current co-head of the unit, will step down from UBS’s executive board to oversee the winding down of the bank’s unprofitable investment banking businesses and financial positions.

“We didn’t want to wait; the new regulation is not going to disappear,” Mr. Ermotti said. “The steps we have taken have given us credibility in the market.”

The overhaul will hit the firm’s short-term profitability. In the latest quarter, UBS posted a loss of 2.2 billion Swiss francs for the three months ending Sept. 30, citing restructuring costs and charges connected to its own debt. The bank recorded a net profit of 1 billion francs in the period a year earlier.

The firm said it expected a charge of 500 million francs related to layoffs and other costs in the fourth quarter, which would lead to a net loss for that period. In total, restructuring costs will reach 3.3 billion francs by 2015.

UBS said its common equity Tier 1 ratio, a measure of a firm’s ability to weather financial shocks, stood at 9.3 percent under the so-called Basel III rules. The bank plans to raise that figure to 11.5 percent by next year.

The bank faces other headwinds. In the latest quarter, pretax profit for its wealth management unit fell 32 percent, to 600 million francs. Costs related to the planned restructuring led to a 2.9 billion franc loss in UBS’s investment banking unit, compared with a loss of 650 million francs in the third quarter of 2011. Similarly, pretax profit in its retail and corporate unit fell 40 percent, to 409 million francs.

A version of this article appears in print on 10/31/2012, on page B10 of the NewYork edition with the headline: UBS to Cut 10,000 Jobs In a Worldwide Overhaul.